Costco profit falls 3.2% in Q4

By Don Hogsett -- Home Textiles Today, 10/13/2003 12:00:00 AM

ISSAQUAH, WA —

With margins under pressure, costs climbing higher and facing fresh competition as rival Sam's Club shows signs of renewed strength, Costco Wholesale Corp. said fourth-quarter profits slipped by 3.2 percent, to $239.4 million from $247.4 million last year.

Sales at the warehouse club giant advanced by 11.3 percent, to $13.4 billion from $12.1 billion a year ago, fueled in part by continued expansion. Same-store sales jumped up by 7.0 percent.

Putting pressure on the bottom line, average gross margin thinned modestly, by ten basis points, or one-tenth of a percentage point, to 10.7 percent from 10.8 percent last year. At the same time, costs edged up by 30 basis points, or three-tenths of a percentage point, to 9.8 percent of sales from 9.5 percent the prior year.

Pressured by the rising costs and margin erosion, operating profits tumbled by 28.3 percent, to $110.8 million from $154.6 million last year.

Siphoning off more cash from the bottom line, interest expense, while still modest, jumped up by 46.4 percent, to $11.7 million from $8.0 million a year ago. But more than offsetting higher interest costs, interest income and miscellaneous income totaled $12.7 million, up 13.5 percent from $11.2 million last year.

Acting as a drag was a $4.0 million charge for asset impairment and store closing costs, down from $5 million during the same period a year ago.

For all of last year, Costco profits edged up by 3.0 percent, to $721 million from $700 million in 2002. Sales advanced by 9.7 percent, to $41.7 million from $38.0 million. Same-store sales for the 12-month period increased by 5 percent.

Costco Wholesale Corp.